Jerome E. Horton, Chairman of the California Board of Equalization, announced on July 12, 2011, the next steps in enforcing ABx1 28, the measure passed by the California Legislature and signed into law by the Governor on June 28, 2011. The law expands "nexus" jurisdiction to out-of-state retailers making sales in California and places use tax-collection obligations on them.

Under ABx1 28, out-of-state online retailers who meet the criteria must register with the BOE and collect and remit the use tax. If the out-of-state retailers refuse to comply with the law, the BOE, in accordance with Article 3, Section 3.5 of the California Constitution, is obligated to enforce the law.

Passage of the law, which the California legislature projects will help California collect an additional $200 million annually, adds California to a growing list of states that have turned to such measures to increase revenue and level the playing field for business. The BOE has estimated that purchases from out-of-state retailers results in approximately $1.1 billion in unreported use tax.

Under Article 3, Section 3.5 of the California Constitution, agencies like the BOE do not have the power to declare a statute unenforceable, or refuse to enforce a statute, on the basis of it being unconstitutional, unless an appellate court or a referendum by the people has made a determination that such is the case.

"We are actively providing retailers information so they have a clear direction regarding their new responsibilities." Horton said. "We will engage in the necessary steps to ensure the affected retailers collect and remit the use taxes owed to the State of California."

The entire Board will receive an update on the staff's implementation and enforcement plans and proposed future regulatory changes at the Board Meeting on July 26 which is open to the public for comment.

The BOE will have its first indication of non-compliance on October 31, 2011 when returns are due and payable for the third quarter of 2011. At that time, the BOE may begin issuing estimated billings to retailers who are required under the law to report and remit the use tax collected, but fail to comply.

Amazon has argued that the law is unconstitutional and wants California voters to decide whether to overturn the new law.

"This will likely set the stage for a potentially high-dollar ballot fight next year that would pit business against business," said Horton.

A petition for a referendum was filed on July 8, 2011, with the state Attorney General's Office, which could eventually require voters to decide on the new law. Amazon also has an option of challenging the law in court.

"It is in every Californian's interest for online and store front businesses to play by the same rules," said Betty T. Yee, First District Member of the Board of Equalization. "I strongly doubt Californians will support a loophole promoting out-of-state jobs, when holding Amazon.com accountable to the same rules as everyone else protects California's economy."

"This is a referendum on jobs and investment in California. We support this referendum against the recent sales tax legislation because, with unemployment at well over 11 percent, Californians deserve a voice and a choice about jobs, investment and the state's economic future. At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away," said Amazon Vice President of Public Policy Paul Misener on the referendum.

"Amazon looks forward to working again with tens of thousands of small business affiliates in California that were harmed by the new law's effect on hundreds of out-of-state retailers. As Governor Brown has made clear, it is important to directly involve the citizens of California in key issues and we believe that Californians will want to vote to protect small business and keep jobs in the state," he added.

"Once the public learns that non-California companies who currently fail to comply with the law and play by the rules are costing California approximately $12.5 billion in sales and $1.1 billion in use taxes which translates into 37,000 jobs, $52 M in property taxes, and $48M in income taxes, Californians will potentially reject the referendum," said Horton. Chairman Horton believes that the court of public opinion and the law of free trade will ultimately make the final determination of the winners and losers under ABx1 28 and Amazon will lose in the court of law.

"Amazon has also canceled all of its California based affiliates," Horton pointed out. "This has caused some confusion and questions about customer loyalty. Will the California consumers wait until these legal and political differences are resolved? If not, market share and free trade will govern the day." Chairman Horton believes that California retailers have a window of opportunity to convince California consumers to buy from them online or in their local California base stores due to this action by Amazon. In addition, he believes that the affiliates may decide to associate with out-of-state or California-based retailers willing to comply with the new law.

"Ultimately, until the public via a referendum, or the courts tell us otherwise, the Board of Equalization will enforce ABx1 28," said Horton.